13.12.1 Why are these characteristics relevant?

It is perhaps fitting that the final relevant characteristic discussed in this chapter (and in this PhD-study) is about exit from State aid. Exit from State aid means that the beneficiary bank should not remain dependent on State support. This is relevant for two reasons. In the first place, beneficiary banks should return to long-term viability. Long-term viability means that the bank is able to survive without State support. In the second place, as long as the bank enjoys State support, there is a distortion of competition. It is therefore welcomed by the Commission if the beneficiary bank can present a clear exit strategy.

How to achieve an exit from State aid? The exit strategy depends on the type of State aid measure. Exit from a guarantee simply ends when the guarantee expires. Exit from State aid in the form of preference shares, CoCo’s or other (hybrid) debt instruments is achieved when the beneficiary bank fully repays the aid amount.1 The fact that the beneficiary bank pays back the State aid (as quickly as possible) is thus a relevant characteristic.

Repayment of State aid is not the only way of exit from State aid. Indeed, if State aid is granted not in the form of debt instruments, but in the form of ordinary shares, then this aid cannot be repaid by the bank.2 During the financial crisis, several Member States decided to nationalise failing banks. The aim of the nationalisation was to rescue the bank; the intention was not to hold the shares in the bank indefinitely. At some point in time, the bank will be brought back to the market. The fact that the Member State has committed to reprivatize the beneficiary bank can be found in several cases. This commitment is viewed positively by the Commission. However, it should be kept in mind that the TFEU takes a neutral position towards private and State property.3 Member States are thus not obliged to reprivatize the bank.

The relevance of reprivatisation is illustrated by the following recital from the decision on ABN AMRO:

This recital illustrates that it may be easier for a bank in State ownership to attract retail deposits, because depositors are aware that the bank is State- supported. Reprivatisation will end this distortion of competition. Reprivatisation may be relevant for two other reasons. Firstly, it will allow the Member State to recover (part of) the funds invested in the beneficiary bank.5 Furthermore, as set out in section 11.3.3.2, the Commission does not always welcome State involvement in the bank’s management. From that viewpoint, the commitment to reprivatize the bank will be noted favourably by the Commission. To give an example: the Slovenian State became sole shareholder of Abanka, NKBM and NLB as a result of the capital injections. Slovenia committed to divest (part of) its shareholdings in these banks. This commitment was welcomed by the Commission, because the divestment would reduce the external influence in the banks’ management and business activities.6